TSX declines, European Central Bank moves to bolster eurozone recovery

TORONTO—The Toronto stock market was lower Thursday as the European Central Bank moved to deal with the threat of deflation and give some lift to a tepid economic recovery.

The S&P/TSX composite index dropped 60.07 points to 14,736.72 as the ECB announced that it’s cutting its lending rate to 0.15 per cent from 0.25 per cent.

And in a more drastic step, it is cutting its overnight deposit rate to minus 0.1 per cent from zero. Charging banks for parking funds with the ECB is an unusual step aimed at pushing banks to lend that money rather than hoard it.

The Canadian dollar was down 0.07 of a cent 91.35 cents US.

U.S. indexes were little changed as ECB president Mario Draghi laid out more measures at a later news conference.

He said the bank will also offer long-term loans to banks at cheap rates until 2018. The loans would be capped at seven per cent of bank’s lending to companies.

The targeted loans would be charged a fixed rate, meaning that the rate could not rise over the life of the credits, even if the bank raises its benchmark. That gives banks confidence they have cheap funding through 2018.

Draghi also said the ECB’s policymakers unanimously agreed to consider more unconventional measures to boost inflation if it stays too low.

The Dow Jones industrials dipped 8.48 points to 16,729.05, the Nasdaq was 6.12 points lower to 4,245.53 while the S&P 500 index lost 3.32 points to 1,924.56.

Markets had moved higher Wednesday on the expectation that the ECB would take action to save the eurozone region from falling into a deflationary spiral that would choke off growth. Worries about deflation increased earlier this week with the release of data showing that inflation in the eurozone came in at 0.5 per cent in May, down from 0.7 per cent in April.

The latest data also showed that gross domestic product in the eurozone grew by a paltry 0.2 per cent in the first quarter.

Traders also looked ahead to the other major economic event of the week: the release Friday of the U.S. government’s employment report for May. Economists have forecast that about 219,000 jobs were created during May following a much stronger than expected 288,000 gain in April.

Doubts about reaching that figure were raised Wednesday after payroll firm ADP reported that the U.S. private sector created 179,000 jobs during May, the fewest number in four months.

Canadian job figures for May also come out Friday and economists expect about 21,000 jobs were created after the economy shed 29,000 the previous month.

The TSX energy sector led decliners, down 0.55 per cent while June crude in New York was down 94 cents to US$101.70 a barrel.

The base metals group lost 0.45 per cent, while July copper was off a cent to US$3.08 a pound.

Financials also weighed on the TSX, down 0.5 per cent.

The gold sector led advancers, up 0.8 per cent as August bullion erased early losses to climb $8.70 to US$1,253 an ounce.

In corporate news, Just Energy Group Inc. (TSX:JE) sold its water heater and HVAC home services business to Reliance Comfort Limited Partnership for $505 million. Reliance is a Canadian supplier of heating, cooling and water heater rental services. Just Energy says it’s also cutting its dividend and will repay about $400 million in debt. Its shares rose nine cents to $6.24.